Mortgage demand falls over December quarter

Demand for home loans dropped significantly for a second consecutive quarter, according to new research by Veda.

The latest Veda Quarterly Consumer Credit Index shows that mortgage application volumes fell from 9.9 per cent to 2.9 per cent in the December 2015 quarter – almost as low as the December 2014 quarter figure of 2.4 per cent.

Veda noted that growth in home loan applications slowed in all states and territories except the Northern Territory during the quarter, with the sharpest slowdown seen in New South Wales.

The annual rate of growth in mortgage applications was strongest in Victoria (+7.7 per cent), followed by NSW (+5.4 per cent), South Australia (+4.7 per cent), the ACT (+2.9 per cent) and Queensland (1.6 per cent).

Western Australia (-10.1 per cent), Tasmania (-11.0 per cent) and the Northern Territory (-14.6 per cent) have seen a fall in mortgage applications over the past year.

Veda’s general manager of consumer risk, Angus Luffman, said the decline in mortgage applications suggests cooling conditions in the housing market, especially in light of APRA’s investor lending crackdown.

“It also suggests less support for retail spending from the housing market in the months ahead,” he added.

Meanwhile, demand for personal loans remained strong during the December quarter with application volumes at 11.9 per cent – up from 11.2 per cent on the previous quarter, and from -5.1 per cent on the December 2014 quarter.

Mr Luffman said the growth in demand for personal loans could be attributed to several factors.

“Despite the challenges posed by the downturn in mining-related construction, retail spending has remained robust due to low interest rate settings, a strengthening jobs market and rising consumer sentiment late last year,” he said.

“Auto finance applications in particular have experienced an upswing, with car sales rising by 6.0 per cent over the year to November 2015, helping drive the growth in personal loan applications."

Another continuing trend from the previous quarter is the proportion of new personal loan applications coming from alternative lenders, Mr Luffman noted.

“Interestingly, the quality of applicants approaching non-traditional finance providers has been steadily improving over the past two years, as evidenced by the increase in applicants’ average credit scores, or VedaScores,” he said.

“The average age of borrowers using alternative lenders is creeping up as these lenders shift from being primarily a channel for younger consumers. The age of applicants is now on par with the market average.

“It’s still early, but if this trend continues, it may be an indication that alternative lenders are becoming a more mainstream option for borrowers.”